Making Tax Digital

Making Tax Digital Exemptions - MTDfB: who is exempt?

Making Tax Digital for Business (MTDfB) is a government initiative and it’s been put in place according to HM Revenue & Customs (HMRC) to make it easier for you and your clients’ to manage and pay taxes.

Ultimately, it’s designed to save the government money whilst providing you and your clients’ with an up-to-date view on your clients’ tax position. If handled correctly using an App, it will also save you and your clients’ time whilst helping them manage their finances properly.

What it will mean is that all professional practices will be required to make quarterly submissions to HMRC and will also result in significant changes to the way professional practices will interact with HMRC as digital reporting and digital tax accounts become a reality.

Current Exemptions

Exemptions will include:

All unincorporated businesses and landlords with annual incomes below £10,000; HMRC are considering whether this should be higher.

Charities, but possibly not trading subsidiaries of charities.

Community Amateur Sports Clubs.

Possibly insolvent businesses and insolvency practitioners.

1. Exemption threshold for MTDfB

HMRC has confirmed an exemption from MTDfB for unincorporated businesses and landlords with a gross income/annual turnover below £10,000. In the consultation, many respondents considered this threshold to be too low and felt it would be unreasonable to impose MTDfB obligations on businesses this small.

As a result, the Chancellor announced in the 2017 Spring Budget that unincorporated businesses with annual sales between £10,000 and the VAT threshold would be given an extra year to prepare for MTD.

Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

Those in employment who have secondary income of more than £10,000 per year through self-employment or property will also be required to use the digital service.

2. The digitally excluded (businesses or people who cannot engage digitally)

ONS statistics on internet use in the UK show that internet adoption is increasing: in 2016, 82% of adults used the internet daily and 70% of adults accessed the internet on the go from a mobile device. What’s more, Smart Insights show that over 90% of browser time is spent in-App, which is why owning your own App to address MTDfB is such a sensible solution.

HMRC does recognise that a minority of people genuinely cannot use digital tools and has therefore agreed to legislate for an exemption. This minority, referred to as the ‘digitally excluded’, are defined as those who cannot engage with accounting software or Apps for specific reasons (listed below), however, HMRC also stated “any other reason” for being digitally excluded will be considered on a ‘case-by-case basis’.

Disability

Religion

Age

Remoteness of location

3. Charities and Community Amateur Sports Clubs

HMRC has confirmed legislation will be introduced to exempt charities and amateur Sports Clubs from MTD obligations. However, trading subsidiaries of charities will not be exempt.

As the primary goal of trading subsidiaries is to make profit which often ‘puts their business activities on a closer footing with non-charitable businesses’, HMRC took the view that trading subsidiaries should be within the scope of Making Tax Digital.